Works in 1.7 & 1.8 snapshots. The arrow still thinks it is inside the tnt when it hits the ground, while also being lit by the lava it then converts the block into tnt and ignites it. Quite a dangerous bug so don't be too evil with it...
I didn't discover this bug saw it from Roxstar30's video on making an automated mineshaft. Make sure you check out his video here